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Wednesday, Nov. 9, 2011

Olympus admits hiding losses since 1990s

Revelations short on details; delisting said possible


Staff writer

Olympus Corp. President Shuichi Takayama said Tuesday the company concealed huge losses on securities investments since the 1990s and used recent acquisitions of Gyrus Group PLC and three Japanese companies to cover the off-the-book losses.

News photo
Shuichi Takayama

The revelation means that the Tokyo-based camera and medical equipment maker may have falsified financial documents for years.

The Tokyo Stock Exchange is investigating to determine if the firm should be delisted.

Olympus had repeatedly denied any wrongdoing over the shady acquisitions.

"We found new facts that differ from what we announced (Oct. 27 in denying wrongdoing) and thus we will reveal them and apologize sincerely," said Takayama, who assumed the post Oct. 26.

In connection with the concealed losses, Olympus fired Vice President Hisashi Mori, and auditor Hideo Yamada expressed his intention to resign.

Takayama also said the firm may fire more people pending the outcome of an investigation by a third-party committee appointed by Olympus.

On Tuesday, the company said in a press release it had postponed writing down losses on its securities investments since the 1990s, indicating it wrote down all or part of the losses via exorbitant advisory fees paid to Cayman Island-based Axes America LLC in connection with the acquisition of Gyrus Group and money it spent to buy three Japanese firms.

Takayama refused during the press briefing to divulge other details on how the company used the Gyrus deal to cover the unspecified off-the-book losses.

The shady acquisitions came under the spotlight after Michael C. Woodford was abruptly sacked last month as president and CEO and went public with demands for details of the deals.

Woodford was axed Oct. 14 by the board members after he wrote a letter on Oct. 11 to then Chairman Tsuyoshi Kikukawa and the 14 board members, pointing out apparent abnormalities in the acquisitions, particularly the unheard-of advisory fees. The board members cited his "selfish management style" as the reason for his dismissal.

The Securities and Exchange Surveillance Commission is investigating to determine if the firm appropriately disclosed information on the acquisition. If it finds Olympus broke the law, it may file a criminal complaint.

"Companies should book losses on securities investments every year. Some companies do so every quarter. Olympus didn't seem to follow the rules on booking losses," said a securities analyst covering the precision equipment industry, who declined to be named because she doesn't know all the details.

Takayama said the company will announce details of the acquisitions as soon as the third-party investigative panel, which Olympus launched Nov. 1, finalizes its probe. The committee consists of five lawyers and a certified accountant.

He also declined to reveal the extent of the securities investment losses, the nature of the securities themselves, when Olympus made the investments, how much advisory fees were actually paid Axes America and how much was actually lost in the value of the shares of the three Japanese firms acquired.

One of the companies recycles medical waste, one makes plastic goods and the third firm produces health care goods.

Even with the new revelations, Olympus will not reinstate Woodford. Takayama reiterated the firm's reason for firing him during Tuesday's news conference.

Olympus has been criticized for spending way too much money on advisory fees for the Gyrus acquisition and booking huge losses in purchasing the three Japanese companies shortly after they were bought.

According to an Olympus press release Oct. 27, the firm paid about ¥66 billion to Axes America, about 35 percent of the costs to acquire Gyrus Group, from June 2006 to March 2010, while royalties for an M&A adviser is usually about 1 percent.

Also according to the press statement, Olympus booked a loss of ¥55.6 billion in March 2009 for the shares of the three Japanese companies that it paid 74.4 billion for between May 2006 and April 2008.

Between Woodford's ouster and Monday, Olympus' market value was off about 50 percent. Its shares fell a further 30 percent Tuesday after it announced the concealed losses.



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